RPF0165-Friday

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00:00:30.300 | Radical Personal Finance has two kinds of listeners.

00:00:34.100 | Listeners and patrons.

00:00:36.900 | And you're listening to this now due to the generosity of the patrons of the show.

00:00:42.100 | If you're not a patron, please go to radicalpersonalfinance.com/patron

00:00:47.900 | for details on how you can keep the show going.

00:00:51.900 | Friday Q&A show today, and we're going to handle four interesting questions.

00:00:55.500 | Question number one, how do I handle my father's finances?

00:00:58.700 | He's aging and he's making some foolish decisions and getting ripped off.

00:01:02.700 | What can I do?

00:01:04.300 | Question number two, what are those rules on rolling over from an IRA to a Roth IRA again?

00:01:09.500 | How does that work?

00:01:11.100 | Question number three, how do I teach a new college graduate about the topic of investing

00:01:17.300 | without purely focusing on the ideas of mutual funds?

00:01:21.700 | And number four, I've signed up to be frozen when I die

00:01:27.900 | in hopes that in the future they'll be able to bring my body back.

00:01:31.100 | How do I actually pay for that at my death?

00:01:35.500 | And how do I make sure I have a bunch of money when I'm brought back to life hundreds of years in the future?

00:01:41.300 | [MUSIC]

00:01:57.500 | Welcome to the Radical Personal Finance Podcast.

00:01:59.500 | My name is Joshua Sheets, and today is Friday, March 6, 2015.

00:02:04.300 | I love doing these Q&A shows.

00:02:05.700 | I don't know about you, but I like doing them.

00:02:07.300 | If you don't listen to them, you really should.

00:02:09.300 | But the fact that you're listening to this means you do.

00:02:11.900 | They're probably some of the most interesting topics that you're ever going to hear on this show.

00:02:16.100 | They're certainly more interesting than the things that I can think of.

00:02:19.500 | And today is going to be good.

00:02:21.900 | [MUSIC]

00:02:29.700 | Quick note to those of you who would like me to answer your question on a show like this,

00:02:33.300 | as you send in your questions, as you email them in, and as you call them in,

00:02:37.100 | I haven't done voicemail questions in a couple of weeks, but I'll get into those soon.

00:02:40.100 | But as you leave them, as you email them, and as you call them in, please let me know if you are a patron.

00:02:44.900 | I will always give patrons of the show the priority in answering your Friday Q&A questions.

00:02:51.100 | At this point in time, I have way too many questions in the backlog that I can hope to answer ever.

00:02:56.500 | And then they keep coming in, and I love them coming in, so I encourage you to get them in.

00:03:00.300 | But make sure, just put a little note in there that you are a patron so that I know.

00:03:03.500 | And I do go and check sometimes, and I recognize some of the names, and thank you for your support.

00:03:07.900 | So let's kick it off with a question here from Jason about his father's finances.

00:03:11.900 | The question goes like this.

00:03:13.300 | "Jason" – excuse me, his name is Jason, my name is Joshua, and he says, "Joshua,

00:03:18.500 | Joshua, my father, who is 60 years of age, has become a victim of numerous scams over the last year or two.

00:03:24.900 | Generally, they involve him receiving calls that he won some prize and needs to wire some money,

00:03:29.700 | usually in $500 increments, to the West Indies, Jamaica, etc.

00:03:34.100 | His decision-making with his finances is not good, to say the least.

00:03:37.900 | He continues to fall for these scams, despite being told by numerous family and friends,

00:03:42.900 | law enforcement, and bank reps that it is a scam, and he is never going to receive any prize.

00:03:50.500 | His financial situation is as follows.

00:03:53.100 | He receives Social Security disability for around $1,400 per month.

00:03:59.300 | His expenses are only about $700 per month.

00:04:02.900 | He owns a very modest house that is paid off.

00:04:05.700 | Also, he has a bank IRA worth about $50,000, wherein he's earning a whopping 1.3% fixed interest,

00:04:13.300 | which is a rollover from a 401(k) which he had when he was employed.

00:04:17.300 | In my efforts to help him with his finances, I got him to give me a power of attorney,

00:04:21.700 | and I was added as a signer on his checking account.

00:04:24.900 | I am able to monitor his checking account through online banking.

00:04:28.100 | However, I live too far away to proactively keep Dad from wiring in money for these scams.

00:04:33.100 | All I can do is call him after I see that he has made a large cash withdrawal from his checking account,

00:04:37.700 | and ask what it was for.

00:04:39.500 | I can tell by his evasive answers that it is usually for another scam.

00:04:45.100 | My question is, how can I prevent him from wiping out his IRA

00:04:47.900 | and spending all his future Social Security earnings on the dream of the big foreign lottery prize?

00:04:53.100 | Does the power of attorney allow me to move the IRA to another financial institution,

00:04:57.300 | perhaps to an online broker or something out of state?

00:05:00.300 | As it stands, Dad can go down to the local bank and withdraw from the IRA with ease.

00:05:04.900 | The account could be wiped out before I had the chance to try to talk some sense into him.

00:05:09.100 | Also, is there some way for me to become a custodian of the Social Security payment,

00:05:12.900 | where I could assure that Dad's needs are met,

00:05:14.900 | and have the rest of the funds go into a savings account in his name?

00:05:18.300 | I would welcome any other suggestions you may have on this matter. Take care. Jason."

00:05:22.300 | Jason, interesting question. It's a little bit strange.

00:05:25.900 | And probably the first thing that I would try to understand if I were personally speaking with you is,

00:05:32.900 | does he simply have poor judgment or is he starting to approach the territory of mental incapacity?

00:05:39.900 | There's a big difference in those two things from a legal perspective.

00:05:43.900 | If he simply has poor judgment, then many of the legal methods and, I guess,

00:05:52.900 | methods of recourse that you could fall back upon are not going to be applicable to you.

00:05:57.900 | If he's approaching mental incapacity, demonstrating signs of dementia, something like that,

00:06:05.900 | then that's a different road.

00:06:07.900 | And so I would try to understand where he is in that decision tree.

00:06:13.900 | Sounds to me like he simply has poor judgment.

00:06:16.900 | And it's very strange because it's unusual. It seems very strange.

00:06:22.900 | You've got a real challenge on your hand.

00:06:24.900 | The major principle that you have to start with, I think, is this.

00:06:29.900 | It's not your money. No matter how much you care, it's not your money.

00:06:34.900 | And there's no law against his doing foolish things with his money.

00:06:38.900 | And that's hurtful to see somebody that you love and care about and are taking care of in a measure

00:06:44.900 | do things that are foolish.

00:06:46.900 | But so many parents have had to watch their kids do foolish things.

00:06:50.900 | I know I've done plenty of foolish things.

00:06:52.900 | And I know that my parents simply sat back and had to watch me do it.

00:06:56.900 | And all of us have had to watch other people do it.

00:06:59.900 | So you've got to keep that in mind, I think, to be on a solid foundation.

00:07:02.900 | But I think there are a few things that you could do.

00:07:05.900 | The first thing that I would really encourage you to do is to carefully read and understand

00:07:11.900 | the document that gives you power of attorney over his affairs.

00:07:16.900 | And this would be a very important time to consult with the attorney who established that for you.

00:07:22.900 | Now, it's possible that you set up some kind of boilerplate document that you just simply bought

00:07:27.900 | and didn't work with an attorney.

00:07:30.900 | If that's the case, then you need to consult with an attorney, take them the document that has been put into force,

00:07:34.900 | and get their advice on it.

00:07:37.900 | Or if you had an attorney establish this for you, consult with that attorney.

00:07:41.900 | This is very much a question that you need a little bit of legal counsel.

00:07:46.900 | Just simply telling me that you have a power of attorney over his -- that he gave you a power of attorney

00:07:52.900 | doesn't actually tell me enough to know how to answer the question

00:07:56.900 | because there are various types of powers of attorney that you could have established.

00:08:02.900 | There are a few legal words that are fairly common.

00:08:05.900 | I'll just give them to you so you feel equipped for the conversation with the attorney.

00:08:11.900 | But here are the major types of power of attorney.

00:08:14.900 | The first is you could – you might have established a general power of attorney.

00:08:18.900 | This is unusual, but it's possible.

00:08:21.900 | And a general power of attorney is a fairly comprehensive document that permits you, the agent,

00:08:28.900 | and in these terms, you're considered to be the agent.

00:08:33.900 | So it permits you, the agent, to basically do just about anything that you want,

00:08:38.900 | any kind of business or financial business that you want to with the principal.

00:08:43.900 | That's what your dad is called in this arrangement, with the principal's assets.

00:08:47.900 | And there are very few restraints.

00:08:50.900 | Now, obviously, you could bring great harm to your father in this situation.

00:08:56.900 | So that's why these are fairly uncommon.

00:08:59.900 | It exposes him to the fact that you can basically do anything with his money and with his assets.

00:09:04.900 | And so therefore, he as the principal has to be very careful of that.

00:09:08.900 | And he should – if he were making wise decisions, he should take a very careful look at anything that you as the agent are doing.

00:09:17.900 | Now, if you have that type of power of attorney, it will give you a much broader legal ability to do pretty much just about anything that you want.

00:09:26.900 | But again, you got to read your document and see what powers are granted to you.

00:09:31.900 | More common is that you might have a special or limited power of attorney.

00:09:36.900 | And these types of documents are basically created to allow you, the agent, to do something specific or gives you powers in a specific area.

00:09:49.900 | So this would be the kind of thing if you were to give a power of attorney to someone.

00:09:52.900 | A common example would be you're trying to buy a piece of real estate and you're out of the country.

00:09:56.900 | Well, you can convey a power of attorney to an agent to represent you in that transaction.

00:10:00.900 | So most powers of attorney are limited powers of attorney.

00:10:03.900 | But when working with parents, it might be different however because you might have done and established a power of attorney that takes effect upon a certain action – or excuse me, upon a certain condition or – upon a certain condition.

00:10:18.900 | And so that leads into what's commonly known as a springing power of attorney.

00:10:23.900 | A power of attorney document can be written so that as soon as it's signed, it immediately takes effect.

00:10:28.900 | But it can also be written that it goes into effect upon some certain event.

00:10:32.900 | So this is common when children are working with their parents and their parents are aging.

00:10:37.900 | Oftentimes, there will be a springing power of attorney which will spring into power.

00:10:42.900 | It will spring into effect at the time of a triggering event.

00:10:45.900 | And that triggering event can be something very simple such as my parents have attained a certain age, age 65, or in a certain specific calendar year.

00:10:54.900 | But it could also be something like incapacity, mental incapacity.

00:10:58.900 | So it's not uncommon to have a power of attorney that says, "If my father is mentally incapacitated, then I now have a power of attorney over their affairs."

00:11:09.900 | It springs into effect.

00:11:11.900 | That's why it's called a springing power of attorney.

00:11:14.900 | And this leads us to the final common word that's applied to powers of attorney and that's a durable power of attorney.

00:11:22.900 | So generally, unless the document says otherwise, if you have a power of attorney and then your father – over your father's affairs and then he becomes mentally incapacitated, generally, that power of attorney is now terminated.

00:11:35.900 | You don't any longer have the ability to conduct business for him.

00:11:40.900 | However, if the document is written as a durable power of attorney, and then that means that even if the principle in the contract becomes incapacitated, that you as the agent can continue to conduct business for them.

00:11:53.900 | So the power of attorney is the document that governs what you can do.

00:11:58.900 | And so it's impossible for someone like me to say what you can do in that situation without actually reading the document.

00:12:05.900 | And since I'm not an attorney, I couldn't actually legally tell you and give you much advice on that either.

00:12:12.900 | This would be a really excellent opportunity for you to seek some legal advice.

00:12:16.900 | And then depending on what you actually find in that document, just start with reading it.

00:12:21.900 | And if you read it yourself, if you haven't, many people never read their legal documents, sit down and read it.

00:12:26.900 | And most of the time, if you can get past the intimidation factor, legal documents are not that tough to understand.

00:12:32.900 | So sit down and read it and see what it says you can do.

00:12:36.900 | I'm leery to, frankly, make any comment further than that simply because I don't know if this is a document you bought off the internet or got from the library or is this – was this a carefully crafted legal document for your specific situation.

00:12:49.900 | And I certainly understand that you've got to balance the difference of cost of counsel versus potential impact.

00:12:56.900 | But if you can keep your father from wasting $50,000 plus $700 a month plus other potential things, it's worth getting some good legal advice.

00:13:06.900 | So seek some good legal advice.

00:13:08.900 | There are a few ideas and a few simple things that you could do.

00:13:11.900 | And frankly, voluntarily, you could set many things up.

00:13:15.900 | You could set almost anything up.

00:13:16.900 | But this is going to largely depend on how open your father is to your involvement in his affairs.

00:13:22.900 | Spend a lot of time on that, talking and asking for his permission to be involved.

00:13:27.900 | If he has somebody that he respects, maybe a family member, a friend, a trusted friend or trusted advisor, perhaps a pastor or a counselor of some type, then consider appealing to that person to gain greater weight to – so that he's clear on the fact that he needs some help.

00:13:46.900 | So look through that from a psychological perspective and see if you can find somebody that would have greater influence than you over his life to whom you could appeal, explain the situation, and ask for his cooperation.

00:13:57.900 | Because with his cooperation, you could very much protect him from himself even without the specific legal abilities – specific legal duties to do it against his will.

00:14:10.900 | If he's willing, you could set up all kinds of things.

00:14:14.900 | One thing I would be very careful of is I would work very hard to make it difficult for him to go into debt.

00:14:20.900 | You didn't mention this as being a factor in his case.

00:14:24.900 | But many times when older people are scammed, it often results in them going into debt.

00:14:29.900 | And whether that's – so be careful of that.

00:14:33.900 | If the debt is mainstream debt such as they have a credit card and now they're putting extra expenses on a credit card, a simple way to prevent that would be to try to freeze his credit files.

00:14:43.900 | Frankly, almost all of us should have our credit files frozen.

00:14:47.900 | But especially for an aging parent, I would most definitely freeze his credit files.

00:14:52.900 | If you're not familiar with that process, it's very simple.

00:14:55.900 | All you need to do is contact – wait a second.

00:14:57.900 | Are you in the US?

00:14:59.900 | If you're in the US, this is how it works.

00:15:02.900 | You need to contact each of the three major credit bureaus, Experian, Equifax, and TransUnion and go through the instructions on freezing his credit files.

00:15:13.900 | When you freeze his credit files, depending on your state, there may be free or there may be a $3 fee for each bureau.

00:15:18.900 | In my state, it's the highest.

00:15:19.900 | It's $10 for each bureau, so it costs $30 to freeze all of your files.

00:15:23.900 | But what that does is once you do it, you'll establish a specific PIN number or a specific secret code.

00:15:29.900 | And without that secret code, you can't actually unfreeze the files.

00:15:32.900 | And when your credit file is frozen, it means that nobody can have access to the credit file in order to grant you credit.

00:15:40.900 | And this would be an excellent thing to do if he's got a paid-for house.

00:15:43.900 | He has some money.

00:15:44.900 | He has an income that is – and he's spending less than his income.

00:15:48.900 | He has no reason to go out and to be borrowing money.

00:15:51.900 | So if you'll freeze his credit files, then you – if you'll freeze his credit files, then he won't have the ability to go and borrow money.

00:15:59.900 | So that will protect him from taking out debts in pursuit of a pot of gold at the end of some theoretical rainbow.

00:16:08.900 | I would most definitely do that.

00:16:10.900 | It's in one way pretty simple to do but in the other way, it's a little bit tricky because you've got to maintain control of that PIN number or that secret code.

00:16:19.900 | So if you can do that for him, it certainly could be easy enough to simply ask him to give you the opportunity to guard that number.

00:16:27.900 | And then without him having that number, he wouldn't be able to unfreeze his credit file and go into debt.

00:16:33.900 | That would be a good thing – good step to take.

00:16:36.900 | And that's the same for any of us who are caring for aging parents who are starting to be on that perhaps questionable place of mental capacity.

00:16:45.900 | Another thing I would focus on is try to just simply protect him from being found by the scammers.

00:16:52.900 | Try to build a little bit of privacy around him.

00:16:55.900 | Change his phone numbers if you can.

00:16:57.900 | Now, maybe he's lived in the same house with the same phone number for 30 years and so he doesn't want to do that.

00:17:01.900 | But try doing that.

00:17:03.900 | Contact the phone company that services his account and see if they can block any unknown numbers.

00:17:10.900 | If he has a smartphone and he's using a cell phone, there are apps that can be set up to do that.

00:17:15.900 | There are call trapping services.

00:17:17.900 | One, I think, is a website called Trap Call.

00:17:19.900 | And then even if it's not a cell phone, your actual landline provider might have a service as well that can block the unknown numbers.

00:17:27.900 | Now, that's not necessarily unknown numbers that are just simply not in your phone book.

00:17:32.900 | That's when the number comes in as unknown and it's blocked, which it often would be.

00:17:37.900 | They can at least cut some of those out.

00:17:40.900 | If possible, look through a way and if he's willing – again, this would be how willing is he to work with you.

00:17:45.900 | If he's willing, look for a way just simply to change the number and only give the number to trusted friends and family and keep it as an unlisted number.

00:17:52.900 | Or set up – you can set up different systems with a voiceover IP phone system.

00:17:58.900 | Set up a diverting number so that all the calls go through a certain number.

00:18:03.900 | And then the number that is published is the number that you have a little bit of control and you can account for which calls go through.

00:18:10.900 | This is a little bit – this technology changes all the time, but I have that type of system set up on my scenario.

00:18:17.900 | I have for years used – I started with it when it was a company called Grand Central.

00:18:21.900 | Now, it's Google Voice, but I've for years routed all my calls through Google Voice, which allows me to mix and match where the calls go and where they – when they come in, which ones are blocked.

00:18:30.900 | And when I get annoying calls that just consistently call me, I can easily block any specific number.

00:18:37.900 | So you could do that.

00:18:39.900 | There are all kinds of little technological tricks that you could do to help with that.

00:18:42.900 | Maybe divert his mail.

00:18:44.900 | If he's getting solicitations in the mail, then divert his mail, figure out some kind of forwarding service.

00:18:48.900 | It depends on what he's able to do.

00:18:51.900 | It's possible that you could simply file an alert with the bank.

00:18:54.900 | Obviously, if his bank representatives have spoken with him, legally they're going to have to protect his interest because he's the client.

00:19:02.900 | But maybe you can at least ask him to put a notice in where they would call you and they would alert you and maybe you might have an ability to check with him.

00:19:12.900 | If he trusts you and is willing to work with you, it is certainly possible that you could establish a more elaborate money management system for his finances.

00:19:22.900 | Change the bank account that his social security check is going into and maybe you could simply provide him with a prepaid card of some kind or send him –

00:19:32.900 | take the social security check and then set up an automatic payment from one account that you have control over and send forward $1,000 a month that gets automatically cashed at his bank or goes into his checking account at his local bank so he can go and get the cash out but a lower budget.

00:19:49.900 | Certainly, you could set up something like that. Again, prepaid card if he's a card user or checking account with automatic transfers.

00:19:56.900 | It all just comes down to the permission.

00:19:58.900 | Regarding the IRA, yeah, you could certainly with his permission change it to a different account.

00:20:03.900 | Maybe you could with his bank – it's a good idea to have it out of the bank but maybe you could invest it into some kind of fixed contract, a CD contract of some kind that at least he wouldn't have immediate cash – check writing privileges or – that would be a good thing.

00:20:20.900 | Remove the check writing privileges from his IRA and move it to simply an out-of-state bank.

00:20:25.900 | But again, all those things are going to either require permission from the power of attorney or they're going to require his voluntary participation.

00:20:32.900 | So that's going to be the big thing.

00:20:34.900 | The only other idea that I had – I mean you could annuitize his IRA.

00:20:40.900 | You could buy an annuity with it.

00:20:41.900 | That way he can't actually overspend the principal but he doesn't need the money.

00:20:46.900 | So that's not a great idea to turn it into an annuity stream.

00:20:49.900 | But if he wanted to spend more money, then that is one way in a different situation that other listeners could do something here.

00:20:56.900 | If you could do something simple where if you help a parent and all of their income streams are annuity streams, the annuity stream from their social security income and the annuity stream from a private commercial annuity, then they just have a budget that they can live on.

00:21:10.900 | And if you freeze the credit files and then just tell them, "Yeah, you can spend all the money," then it helps to put in a situation where they're protected from themselves.

00:21:21.900 | Those are the best ideas I have for you.

00:21:23.900 | If anybody has other ideas, come by the show notes for today's show and comment and help Jason out.

00:21:28.900 | It's certainly a question that many more of us as our population ages and many of us work with parents primarily, this is certainly an area that requires some good planning.

00:21:40.900 | Hope that helps.

00:21:42.900 | Next question comes from Brad and he says, "Hi, Joshua.

00:21:46.900 | How much can one roll into a Roth IRA from a traditional IRA?

00:21:51.900 | Is it true that interest earned in the traditional IRA is treated as principal once it's rolled into the Roth and can be withdrawn without the penalty after five years?

00:22:01.900 | I really like the variety of your show.

00:22:03.900 | Keep it up.

00:22:04.900 | Best wishes, Brad from Utah."

00:22:05.900 | Brad, it's a good question.

00:22:06.900 | It's a simple question and let me answer it simply.

00:22:08.900 | You can roll any amount from a traditional IRA into a Roth IRA without any maximum rollover amounts and without any caps on income.

00:22:18.900 | Anybody can do this.

00:22:20.900 | In the year that you roll it over, you will take up the total amount of the rollover as income on that year's tax return.

00:22:28.900 | So that leads you into a question of when is this smart to do and when is this not smart to do.

00:22:34.900 | If you have, say, a normal earned income and you have a large IRA balance, in general, it's probably not going to be advisable to roll over that large IRA balance all in one year on top of your normal earned income.

00:22:47.900 | I am slow to recommend rollovers from traditional IRAs to Roth IRAs without looking at specific examples to understand where it can be good.

00:22:58.900 | So if you have just simply because it pushes you up into a higher marginal income tax bracket and now you're saying, "Well, no matter what, even with this massive rollover, then I'm going to go ahead and pick up a much higher income tax rate," well, there's not going to be any income tax savings.

00:23:13.900 | So you've got to be careful of that.

00:23:15.900 | Now, there are unique situations.

00:23:17.900 | So, for example, you've probably heard on this show there are a lot of people who are focused on early retirement that are using this Roth conversion idea to get a lower total tax bill.

00:23:27.900 | Well, the reason that works is because they're rolling the funds over in a year in which they have low or no income.

00:23:33.900 | And so this is something that you should keep an eye on.

00:23:36.900 | For example, let's say that one year – to make my scenario simple – December 31, you get laid off from your job.

00:23:44.900 | And for the next year, you're looking for work and you have no income other than perhaps an unemployment income.

00:23:50.900 | Well, if that's a year of unusually low income for you, you should most definitely always look to see, "Can I do a traditional IRA rollover into a Roth IRA rollover?"

00:24:00.900 | A good number to always know is what is the amount of tax-free income that I can have for my family based upon the standard deduction, based upon the number of simple tax credits that I have such as child tax credits or dependent tax credits, and know that number.

00:24:15.900 | And that will vary.

00:24:16.900 | If you were a young, single man or woman without a bunch of extra credits, that number is much lower.

00:24:23.900 | If you're a head of a household and you have multiple kids, that question could be much higher.

00:24:27.900 | And just pay attention to that.

00:24:28.900 | So if you have a year of unusually low earnings because you lost a job or because you were taking a year off and traveling around the world, then those are good years to do IRA rollovers.

00:24:39.900 | And it's possible that you could do a rollover and still be in the zero percent bracket or the very low bracket, which in your situation you say, "This is a low bracket.

00:24:48.900 | I'm going to go ahead and do this."

00:24:50.900 | So there's no limit on the total amount.

00:24:52.900 | Now, let me answer your second question.

00:24:53.900 | You asked, "Is it true that interest earned in the traditional IRA is treated as principal once it's rolled into the Roth and can be withdrawn without the penalty after five years?"

00:25:03.900 | Yes, that is true.

00:25:04.900 | But be careful to make sure that you understand how you wrote that.

00:25:08.900 | Let's assume that I have contributed $50,000 into a traditional IRA over a period of years of working.

00:25:15.900 | And that $50,000 that I have contributed has grown into $100,000 this year.

00:25:22.900 | That $100,000 represents $50,000 of original contributions and $50,000 worth of interest growth.

00:25:29.900 | So I have $100,000 and I roll it over from a traditional IRA into a Roth IRA.

00:25:35.900 | In the year that I roll that money over, I will pick up the total amount of the rollover.

00:25:41.900 | So I will pick up $100,000 of income on my income tax return.

00:25:46.900 | Assume that my standard earned income is $50,000.

00:25:50.900 | So now I'm going to pay income tax based upon $150,000 of income.

00:25:56.900 | I'm going to go ahead and pay that income tax.

00:25:58.900 | Now, in that Roth IRA, I have established that $100,000 number as my basis.

00:26:05.900 | That's the amount of my contribution to the account is $100,000.

00:26:10.900 | And I've paid tax on that $100,000.

00:26:13.900 | Now, fast forward five years.

00:26:16.900 | The money stays in the Roth IRA for five years.

00:26:18.900 | Over that five years, I've had brilliant investment performance and my money has grown again by another $50,000 magically.

00:26:25.900 | So I've gone from $100,000 contributed to the Roth IRA to $150,000.

00:26:31.900 | After five years from the date of rollover, I can go ahead and distribute $100,000 from that Roth IRA account and I will not pay tax or penalty on that money.

00:26:43.900 | But the remaining money, the $50,000 of gain in the account, must stay in the account or if it's withdrawn without a qualifying exception, it will be taxed and penalized.

00:26:54.900 | So that's the answer to the question.

00:26:57.900 | Be careful to make sure you get those details right as far as, yes, the interest that's earned in the traditional IRA will be treated as principal but it's treated as principal because you're paying tax on it.

00:27:06.900 | And then, yes, you can be withdrawn from the penalty without the penalty after five years.

00:27:11.900 | So question here is just be clear on why you're asking the question.

00:27:16.900 | If you're asking the question from the purpose of saying I'm trying to massage my tax rates and do intelligent tax planning, that's one thing.

00:27:23.900 | If you're asking the question from the purpose of how do I get money out of the IRA early without paying penalties, that's a different question.

00:27:30.900 | And this is – both of these – this technique can be used in either of those lines of thought.

00:27:34.900 | So it's unclear from your question why you're asking the question but make sure you understand that before you start applying it.

00:27:40.900 | Next question comes from Dustin.

00:27:43.900 | Dustin says, "I have a friend who's a 22-year-old male new graduate who is just starting his first engineering job.

00:27:51.900 | And he asked me if I had any good resources on investing.

00:27:55.900 | Prior to his question, I sent him your "Becoming a Millionaire Who's Working at Walmart" episode as I felt that portrayed a lot of key concepts very well.

00:28:03.900 | I want to recommend another episode that really embodies your take on investing which I think is very helpful as my friend seems to think investing just means putting money in the stock market.

00:28:11.900 | What would you share with him? Dustin."

00:28:14.900 | Dustin, it's a good question.

00:28:15.900 | I'm going to create a show on it at some point.

00:28:17.900 | I'll probably create a standalone product of some sort, a standalone CD course, something like that that can be a physical product that you can buy and give to somebody like this.

00:28:26.900 | It's a giveable resource.

00:28:27.900 | But let me just give you my thoughts on the question.

00:28:29.900 | If I were working with him, I would very much focus on trying to find something that he can relate to.

00:28:36.900 | And I generally have found that the Socratic method of teaching where you're asking questions is more effective.

00:28:44.900 | One of the things that you learn in studying sales skills, most especially individual person-to-person sales skills, is the power of sales is in asking great questions.

00:28:55.900 | It's not in telling.

00:28:56.900 | It's in asking great questions because the person who asks a question controls the course of a conversation.

00:29:02.900 | So world-class salespeople will generally ask world-class questions.

00:29:07.900 | The goal of asking the questions is to find a point of common understanding, find something that he can relate to.

00:29:14.900 | Now, probably – you said he's a new college graduate just starting an engineering job.

00:29:18.900 | Probably that's going to be something related to college or maybe related to engineering, good foundation, engineering principles, things like that.

00:29:26.900 | Most definitely it's college probably.

00:29:29.900 | Now, if he's a gardener, then start with the idea of sowing a seed and getting a return on a multiplication of the seed or breeding cattle.

00:29:37.900 | Or if he's ever had a lemonade stand or exhibited any entrepreneurial inclination, then start there.

00:29:43.900 | Business is a way of printing money, and so you invest in the raw materials and you create it.

00:29:48.900 | So that's how I think of investing.

00:29:51.900 | It's a way of creating and printing money for yourself.

00:29:53.900 | Most people have had enough at least casual exposure to the concepts of business, something like a lemonade stand, where they can understand that.

00:30:02.900 | Yes, you're a 12-year-old.

00:30:03.900 | When you were 12 years old, you went out.

00:30:05.900 | You bought a dollar's worth of lemons.

00:30:07.900 | You bought a dollar's worth of sugar and you bought a dollar's worth of water and you borrowed a table.

00:30:13.900 | You have $3 invested into that.

00:30:15.900 | You sold cups of lemonade at 50 cents each and you invested and you sold 20 cups of lemonade.

00:30:24.900 | You earned $5.

00:30:26.900 | That means that you've printed $2 for yourself through your labor.

00:30:30.900 | That pays you back and now you have an investment of your labor for a return on investment.

00:30:34.900 | That's it.

00:30:35.900 | That's the fundamentals of investment.

00:30:39.900 | If you get that concept, you get – it's exactly the same thing that Walmart does just on a bigger scale.

00:30:46.900 | When you buy Walmart stock, all you're doing is investing in their money printing and giving them some money so that they can print some more for you.

00:30:53.900 | That's it.

00:30:54.900 | That's it.

00:30:55.900 | It's as simple as that.

00:30:56.900 | It's not a hard concept.

00:30:57.900 | But the challenge is we don't generally have a lot of exposure to entrepreneurship.

00:31:01.900 | Most of our teachers are not entrepreneurs.

00:31:03.900 | So we don't ever think about this and we're generally discouraged from entrepreneurship and encouraged in the direction of earning wages.

00:31:12.900 | So probably though to give somebody a more comprehensive view of investing, I would use something like college and I would ask him, "Why did you go to college?"

00:31:22.900 | If you ask most people, why did they go to college?

00:31:26.900 | A few will make an answer such as I wanted to be a more well-rounded person.

00:31:30.900 | A few will say I wanted to experience the joys of a liberal arts education.

00:31:36.900 | Very few.

00:31:37.900 | Most people will say because I'm going to make more money.

00:31:40.900 | That's how college is sold in this country.

00:31:43.900 | It's not sold as educational attainment or becoming a more well-rounded person or being connected with the liberal arts.

00:31:52.900 | It's sold as making more money.

00:31:54.900 | Now, those other things are ancillary benefits or having a good time, party school, that kind of thing.

00:32:00.900 | Those are ancillary benefits.

00:32:02.900 | But it's sold based upon the idea of it being an investment.

00:32:06.900 | If you invest in this certificate of completion called a diploma, then you will have a higher total lifetime earnings.

00:32:14.900 | That's what it's sold as.

00:32:16.900 | Unfortunately, in the same way that very few people ever actually look at the financial transactions in their life and run a cost-benefit analysis and figure out what is the opportunity cost for this money and this time, since we don't do that, most people would say, "OK, I'll go ahead and do it."

00:32:30.900 | I've never met the college student who sat down and said, "So I calculated what I was giving up by not working for the next four years, and I also calculated what the cost of tuition would be,

00:32:40.900 | and I figured out that very much it's in my best interest to purchase this four years of college tuition rather than to get started on my earning career earlier."

00:32:48.900 | And the magical lifetime earnings things don't necessarily go into that.

00:32:53.900 | It's a show I'll do at some point actually of going into that scenario and just trying to calculate, "OK, let's say that you started with the average earnings of a high school graduate.

00:33:00.900 | You started earlier," the other way around.

00:33:03.900 | And most of the time, college is still going to come out ahead, but nobody has calculated that as an example.

00:33:08.900 | But he has said, "I'm going to invest in a college degree."

00:33:12.900 | So start there.

00:33:15.900 | We invest in a college degree to have a higher total lifetime earnings, so start with that.

00:33:19.900 | That was an investment.

00:33:21.900 | Let's say that he spent $50,000 on his engineering degree.

00:33:24.900 | He could have taken that $50,000 and invested it in lemonade stands or in Walmart stores, but he didn't.

00:33:30.900 | He invested in a college degree.

00:33:32.900 | So I would expand from there.

00:33:34.900 | And then with a focus on education, why is college supposed to increase your earnings?

00:33:41.900 | Well, there could be various answers to this from the cynical to the optimistic.

00:33:47.900 | Theoretically, it's supposedly because you have a higher level of educational attainment, right?

00:33:51.900 | So now you're qualified for a broader number of positions, and now you're qualified to earn more money.

00:33:58.900 | So let's stick with the optimistic viewpoint.

00:34:01.900 | Should that investment into education stop at 22 years old with the certificate of completion saying bachelor's degree in engineering on it?

00:34:12.900 | No, obviously not.

00:34:14.900 | That's just the foundation.

00:34:16.900 | So investing in education is a concept that we're familiar with.

00:34:19.900 | We just don't usually identify it.

00:34:21.900 | Many people go to college, and then they don't continue their education.

00:34:25.900 | It's supposed to be a commencement ceremony, right?

00:34:28.900 | The starting of life.

00:34:29.900 | We've got to continue in our education, and usually this happens because in general, college degrees are generalized knowledge, and then on the job is where you learn the specific knowledge.

00:34:38.900 | But it builds on the foundation that you have.

00:34:40.900 | It builds on the ability that you've demonstrated to learn, the skills of learning that you've learned.

00:34:45.900 | It depends on how generous we're being with the value of a college education in the concept.

00:34:50.900 | That would be where I would start.

00:34:51.900 | But then I would look at something like housing and talk about the – what kind of housing arrangement does he have?

00:34:58.900 | And then calculate for him and help him calculate, okay, if you pursue this certain housing arrangement, which is fairly standard, and then contribute this other money to a 401(k), what can be your expected rates of return on the money?

00:35:12.900 | He's an engineer, so he should be able to do some math and teach him how to run a financial calculator and calculate that.

00:35:17.900 | And then say, well, what if instead of doing this standard approach, maybe you bought a duplex and you lived in one aspect of it, one side of it.

00:35:27.900 | So you qualified for the duplex with the same amount of money that many people would spend on a single-family home, but you bought a duplex with a 2-1 on either side.

00:35:35.900 | So you have a total of four bedrooms and you rent out three of the bedrooms and live in one.

00:35:38.900 | That's an excellent investment.

00:35:40.900 | I dare say most 22 or maybe 23 or 24-year-old young engineers with a year or two of earnings history, most 22-year-olds or most young engineers could qualify for a mortgage to the amount that would allow them to purchase a duplex.

00:35:56.900 | Then by renting out one of the halves and one bedroom in the half that you live in, assuming a single man, you have an opportunity where it's very likely that I bet those tenants would actually make that mortgage payment.

00:36:08.900 | And then demonstrate to him how much money that will grow to.

00:36:13.900 | Put an opportunity cost in there and say – let's say that he needs a new car.

00:36:17.900 | Calculate buying a new car and then calculate and demonstrate how if you use that money for a down payment on a house or a duplex that you can then rent out three of the four bedrooms and then reinvest it, how he could probably simply make the transaction of buying the duplex, living in one of the bedrooms, and have his tenants pay a car payment for him.

00:36:37.900 | That should be a fairly reasonable example to be able to grasp.

00:36:43.900 | Is he giving up some lifestyle benefit? Yeah, he's got a roommate.

00:36:48.900 | But again, even if you find a scenario, find a triplex and live in the studio.

00:36:53.900 | My point is, however, if he could have tenants that are paying for his mortgage and maybe he can find a good deal and those tenants can also pay for his car payment, he's in a good spot.

00:37:03.900 | These are fairly mainstream ideas or at least they're fairly easily understood.

00:37:08.900 | I generally almost always when talking with people will try to use real estate as an example of investment because real estate, we're around it our whole lives.

00:37:17.900 | We touch it. We live in it.

00:37:19.900 | We're familiar with people paying rent.

00:37:21.900 | We're familiar with these concepts.

00:37:23.900 | And so oftentimes use real estate as a way of demonstrating dividends.

00:37:28.900 | They're not the same but in a way they are.

00:37:31.900 | The rent that you receive from owning rental real estate, that's akin to the dividends that you receive from owning the shares of a company.

00:37:38.900 | The number of people that are familiar with the concept of paying rent is much higher than the number of people who own individual stocks and are familiar with the concept of receiving and spending dividends.

00:37:48.900 | So I would start with some of these examples and then I would teach him how to run a financial calculator and/or just teach him how to make some simple spreadsheets.

00:37:55.900 | He's an engineer. He's probably got the spreadsheet bug.

00:37:58.900 | And teach him how to sit down and design some fun spreadsheets.

00:38:01.900 | Use that example I just gave.

00:38:03.900 | Okay, work for a year.

00:38:04.900 | Save a certain amount of money for a down payment on a duplex.

00:38:07.900 | Even if you can't get a deal on the duplex, which is a big deal, you should, but even if you just have to buy retail prices, you can at least plug that into a spreadsheet and see if I take action A, I can expect this, and then compare that to action B.

00:38:20.900 | Show him how to sit down with his 401(k).

00:38:23.900 | Show him how to put a certain amount of money into it.

00:38:25.900 | Show him how the employer match works.

00:38:26.900 | Take an assumed rate of return and then project it out and just model these different scenarios.

00:38:32.900 | And an engineer should be able to understand and do a little bit of simple financial modeling.

00:38:36.900 | Just Excel is all you need and make up the formulas as you go.

00:38:39.900 | You don't even need to start with a template.

00:38:41.900 | It's not that tough.

00:38:43.900 | So that's where I would start.

00:38:44.900 | Hopefully, that can be helpful to you and at some point, I will go ahead and be able to create the resource for how to think about investing.

00:38:53.900 | Just every decision in life, look for what's the best use of money.

00:38:58.900 | Next question, let's go to Caitlin's question on cryonic freezing and this is the first time in my life I've ever been asked this question and this is going to be fun.

00:39:08.900 | She says, "I think I have a unique and radical financial situation.

00:39:12.900 | I figured with your unique outlook on things and the interesting nature of your show, this might be an interesting question for you to consider.

00:39:18.900 | I want to be frozen after my legal death and reanimated later.

00:39:23.900 | I also want to preserve my wealth so that if and when I am brought back, I will gain the benefit of at least many decades of compound interest.

00:39:32.900 | My question is this, how should I fund my being frozen and how should I preserve my wealth in perpetuity after my death until my reanimation?

00:39:43.900 | Details, I currently have a 20-year term $150,000 life insurance policy.

00:39:48.900 | The cryonics organization is set to be the beneficiary.

00:39:51.900 | Upon my death, they will take my body and fly it to their facility where it will be retained.

00:39:56.900 | The cryonics plan that I have signed up for costs $80,000.

00:40:00.900 | I have added the additional $70,000 for any chartered flights that might be needed to be flown or any legal battles that will need to be fought in order to get my body.

00:40:09.900 | I know that the 20-year term will expire and as I am presently 23 years old, I hopefully will still be around.

00:40:15.900 | I was wondering what I should do long term.

00:40:18.900 | I was considering just using the company standard trust model and pumping money into it over the 20-year period.

00:40:24.900 | My insurance representative thinks that I should move to a whole life policy.

00:40:27.900 | What are your thoughts?

00:40:29.900 | My second question is in regards to preserving my personal wealth upon death.

00:40:33.900 | As I will no longer be a legal person upon death, what is the best way to preserve and grow my wealth over the years in such a way that I can claim it upon being reanimated?

00:40:43.900 | Ideally, I would like to have a revival incentive in order to encourage people to revive me, something along the lines of 20% of the wealth accumulated.

00:40:51.900 | What do you think the best financial instrument would be? A trust?

00:40:54.900 | It's a bit tricky as I will not be a legal person after death.

00:40:57.900 | It's an odd question and I appreciate your help. Thanks. Caitlin.

00:41:01.900 | Caitlin, this is an incredibly fascinating question and it's very fun to think through and I've never thought through it until I received your email.

00:41:11.900 | It's very interesting.

00:41:13.900 | We live in interesting times and there's all these weird new legal situations that have to be faced, something like you're describing here with cryonics is interesting.

00:41:25.900 | There's all these weird legal situations that are being faced based upon people changing with artificial reproduction and that's a whole challenge of – I mean you know about the – maybe you don't.

00:41:39.900 | There are all kinds of interesting legal cases here because historical legal precedent based upon natural processes is no longer adequate in artificial situations.

00:41:50.900 | So this is interesting.

00:41:52.900 | So I tackled the two questions separately. The first is how to fund the cost of freezing and the second is how to fund the life, your life, potential life after or if the reanimation is successful.

00:42:06.900 | Then there's also the third question which you didn't mention, which I'm mentioning for you, which is how to have a really great life now so that you actually enjoy the years that you have and so that you actually want to return to life because there are many people who just simply check out and don't want to live.

00:42:28.900 | So you've got to balance all of this future-oriented thinking with present orientation as well, and I was tempted to make impolite jokes and references to – I won't even go there.

00:42:42.900 | But so I'm going to deal with – it's an interesting question.

00:42:46.900 | So let's start with how to fund the cost of freezing. In my mind, your insurance representative is absolutely right, and I can't think of a more perfect solution for you than a whole life insurance policy in this scenario.

00:43:00.900 | If the goal is to have a certain amount of cash that's due upon death, there is no better financial instrument than a life insurance policy.

00:43:10.900 | People often fail to appreciate the beauty and the versatility of life insurance.

00:43:16.900 | Life insurance is the perfectly designed financial instrument to deliver a lump sum of cash at the date of death.

00:43:23.900 | Now, it has other limitations, but if that's the goal, it's perfect for that, and so that's why you'll often see a life insurance policy established for the costs of a funeral, the costs of burial.

00:43:35.900 | Or you'll see a life insurance established for the costs of paying something like death taxes at your death.

00:43:42.900 | These things are going to be – I mean it's a perfect fit for that.

00:43:46.900 | If we own – let's say that we have a portfolio of blue-chip stocks, we can't guarantee what the value of those blue-chip stocks will be at the date of our death.

00:43:55.900 | Well, we can guarantee what the value of our life insurance policy will be at the date of death.

00:44:01.900 | Additionally, life insurance can be paid for over a period of time, and so we can fund it with a fixed known cost.

00:44:10.900 | And in your situation, the scenario that you're describing, you absolutely do need a whole life insurance policy.

00:44:16.900 | Term life insurance is the perfect financial tool to fund temporary needs for life insurance.

00:44:24.900 | And so if I need to fund for the next 15 years while my children are young and I need to make sure there's a large amount of death benefit in force until they're grown and out of the house, term life insurance is the perfect scenario for that.

00:44:37.900 | But term life insurance is a terrible solution for a long-term insurance need.

00:44:42.900 | You need a permanent life insurance policy.

00:44:45.900 | And I'll explain the words just a minute.

00:44:48.900 | I'm going interchangeably here between whole life insurance and permanent life insurance.

00:44:51.900 | Those are not necessarily interchangeable.

00:44:54.900 | But let's just stick with the word permanent life insurance.

00:44:57.900 | You need a permanent life insurance policy.

00:44:59.900 | You need a life insurance policy that is guaranteed to be in force on the date of your death.

00:45:05.900 | That's going to be a permanent life insurance policy.

00:45:08.900 | And so this is the perfect fit for that policy.

00:45:13.900 | And the beautiful thing about starting with it at a young age is your premiums are going to be extremely low.

00:45:18.900 | You're 23 years old and you're a female.

00:45:21.900 | So your expected lifespan is higher because you're a female, which makes your premiums lower, and you're 23 years old, which makes the premiums incredibly low.

00:45:29.900 | So this is an ideal scenario for you is to purchase now a permanent life insurance policy.

00:45:36.900 | Now, any time that you purchase a permanent life insurance policy, you run a risk.

00:45:41.900 | If you die in the short term, you would have wished that you had bought a term policy.

00:45:45.900 | But the nice thing is if you die in the long term, then you're sure to have this life insurance policy.

00:45:52.900 | So there are various types of life insurance policies that you could buy that are going to come in underneath the permanent life insurance policy.

00:45:58.900 | And there are, in life insurance, in this type of life insurance policy, there are two primary triggers.

00:46:04.900 | You'll hear the words "variable" used, and that's variable as compared to traditional.

00:46:09.900 | What that word means, any time you read it in a life insurance contract, variable means invested in an investment portfolio, most commonly a mutual fund account of publicly traded securities.

00:46:20.900 | So that's what the word "variable" means.

00:46:22.900 | So you'll hear "variable whole life insurance," and you'll hear "variable life insurance."

00:46:27.900 | And you'll hear "variable universal life insurance."

00:46:30.900 | So that word "variable" is one you want to look out for, and that's compared to – there's not really an antonym for it, but it's basically compared to "traditional" would be the other word, which means non-variable.

00:46:41.900 | So I guess we just use variable and non-variable.

00:46:43.900 | The other terms that you'll hear here in this question is the question of whole life insurance versus universal life insurance.

00:46:53.900 | So this definition of whole life insurance versus universal life insurance, in essence, a whole life insurance contract is a contract that's guaranteed to last for your entire lifetime.

00:47:04.900 | A universal life insurance contract is a contract that can last for your entire lifetime as long as it's funded properly.

00:47:11.900 | And there are all kinds of permutations of these and all kinds of companies that have different names, but let me make it simple for you.

00:47:16.900 | If I were in your shoes, I would not buy a universal life insurance contract in this scenario because it doesn't have the guarantees that I need, and I would not buy a variable life insurance contract in this scenario.

00:47:27.900 | Oh, by the way, I forgot to mention the term "indexed." Just ignore "indexed" for a moment. Let's skip that.

00:47:33.900 | So I would not buy a variable life insurance policy. I would buy in this scenario a traditional whole life insurance policy.

00:47:40.900 | The reason I would make that choice is because these are conservative policies that are guaranteed to be there at the date of your death.

00:47:49.900 | They're at a guaranteed premium, and they'll satisfy the need that you have in this scenario.

00:47:56.900 | So I would buy a traditional whole life insurance policy.

00:48:00.900 | I won't go into all the details of why I wouldn't buy – well, I wouldn't buy a variable policy because you need to have a specific death benefit to fund this.

00:48:08.900 | You know how much that death benefit is going to be.

00:48:10.900 | And so the idea of potentially having a higher death benefit is going to be less – or potentially a lower death benefit due to the performance of the variable account is going to be less important to you because you have a specific need for a specific sum.

00:48:21.900 | And again, I wouldn't buy a universal life insurance policy because I would not want to run the risk that the policy was underfunded and was not there at the date of my death.

00:48:30.900 | Traditional whole life insurance policy.

00:48:32.900 | I would choose – for these types of policies, you're much better off going with a very old mutual insurance company.

00:48:39.900 | Your short list here is essentially Northwestern Mutual, New York Life, Mass Mutual.

00:48:44.900 | These are the big three in this scenario at this point.

00:48:47.900 | Guardian is the trailing fourth.

00:48:51.900 | These companies have been around for over 100 years, all of them, some of them 150, some of them more.

00:48:57.900 | They all have excellent traditional conservative insurance contracts that will be there for you, and that would be what I would definitely do.

00:49:07.900 | Now, check the premiums on that, and if you can't afford that right now, then what you must have is you must have a term life insurance policy that can be converted to one of those companies' traditional whole life insurance policies regardless of any changes in your health.

00:49:23.900 | I would as quickly as possible get out of a level term life insurance policy.

00:49:28.900 | Level term is not appropriate in this scenario because the key function for you, based upon the facts that you've described, you need to not run the risk that you can't pay this bill.

00:49:41.900 | And so you would want to purchase what's called an annual renewable term life insurance policy, and each of those companies will have one.

00:49:50.900 | So you want to buy an annual renewable term life insurance policy.

00:49:54.900 | Most term life insurance used to be annual renewable term.

00:49:57.900 | Now it's much more common that most term life insurance is what's called level term insurance.

00:50:03.900 | The problem with the level term insurance is that it's going to run out in 20 years.

00:50:07.900 | And the other problem with it is in your individual policy, there will be only a specific period of time in which you can convert it from a term insurance policy to a whole life insurance policy, and it's probably something like 10 years depending on your company and depending on your contract.

00:50:22.900 | So you need to make sure of a couple of things.

00:50:25.900 | Number one, you have a longer period because let's say you're 23 years old.

00:50:28.900 | So let's say that you can't actually – you're building your wealth now, and let's say that you can't afford to make the payments on this whole life insurance policy or you decide that it's a higher priority for me to fund the basic needs of my life now.

00:50:41.900 | I'm going to buy a house.

00:50:43.900 | I'm going to build my investments, things like that.

00:50:45.900 | Well, if you make that decision, you need to have a term life insurance policy now to keep the cost low, but you need the flexibility of at the age of 47 when you've built wealth to go ahead and be able to convert it to a whole life insurance policy.

00:50:59.900 | Well, if in the meantime you've gotten sick or you've gotten hurt or you've gotten fat or you've started doing some hobbies that are going to make it tough for you – you've started flying airplanes, things like that, that are going to make it tough for you to get an insurance policy, you want to get that locked in with a term insurance policy now.

00:51:13.900 | And annual renewable term policies will give you a much longer period of time in which you can convert them to a whole life policy.

00:51:21.900 | Many of these policies will allow you to convert them anytime even up through the age of 60.

00:51:26.900 | So that gives you in your scenario 37 years of flexibility in which you can make any of a few choices.

00:51:34.900 | You can just drop the insurance, decide I don't want to be frozen anymore, or you can convert it when you can afford the premiums to a whole life policy.

00:51:42.900 | So there's a lot of flexibility there.

00:51:44.900 | So definitely at the very least, get out of the level term insurance policy and move into an annual renewable term insurance policy that's convertible for a longer period of time than the 10 or 15 years that – maybe 20.

00:51:57.900 | It depends on your term policy, but 10 or 15 years that your life insurance policy currently is convertible for.

00:52:02.900 | And you want to make sure that's with the company which you'll be happy with their whole life insurance products.

00:52:09.900 | All life insurance companies are not created equal.

00:52:11.900 | And what happens is usually the cheapest term life insurance is usually offered by the companies who you simply wouldn't want to own their whole life insurance products.

00:52:22.900 | So the term life insurance marketplace is extremely aggressive and the prices are awesome.

00:52:27.900 | But you have to ask yourself the question, "Do I want to own simply the cheapest term insurance or do I need this method of converting it over time?"

00:52:37.900 | And the facts of the situation will change.

00:52:40.900 | In this specific need though, the facts are clear.

00:52:43.900 | You need a policy that's convertible over the long term.

00:52:46.900 | So it sounds to me from what I read on the Cryonics company that what I would probably do is just simply have them as the beneficiary of the trust – excuse me, a beneficiary of the policy because we're still solving how to pay for the money.

00:52:59.900 | And if you don't have to make payments up front, then this is going to be the best way.

00:53:03.900 | And what you can do is you can establish some simple legal protections with the actual life insurance policy if you want to.

00:53:10.900 | And this would protect the company if they have requirements that they know, okay, you're on the list.

00:53:15.900 | Just depending on the funding requirements, you have to fund it up front.

00:53:18.900 | And it also protects you.

00:53:19.900 | So, for example, if you were only focused on how can I make this $150,000 payment, you could simply get a life insurance policy and you could make the company, the Cryonics company, an irrevocable beneficiary of the policy.

00:53:33.900 | And that's a simple form that you file with the life insurance company.

00:53:38.900 | And then if anybody ever calls up or you want to – I mean you're the policy owner.

00:53:41.900 | So you're the only one who could change it.

00:53:43.900 | But if you want to call up and change the beneficiary, you can't do that.

00:53:46.900 | Get some good, careful advice here in this situation because my big thing is keep yourself flexible.

00:53:52.900 | You have no idea what you're going to want in 20 years or in 30 years or in 50 years.

00:53:56.900 | You might be like – I have a grandmother who's 100 and something years old and all of my grandparents have lived in their mid-90s.

00:54:05.900 | And trust me, when they die, they're ready to go.

00:54:08.900 | So you might get to the point where you're 95 years old and you say, "No matter what, I don't want to be brought back."

00:54:14.900 | That's what the decision that all of my grandparents would have made.

00:54:18.900 | They just reach a point in time and they've lived a long life and it's enough.

00:54:22.900 | They didn't want to live any longer in this world.

00:54:24.900 | The other world is a different story but they didn't want to live any longer in this world.

00:54:28.900 | Now, as I understand it, that's just simply going to be a fee for the company.

00:54:34.900 | And the other side is how to have money if you're brought back to life.

00:54:41.900 | And before I answer that question, you need to make sure that you have some protections and – well, let's just handle it.

00:54:50.900 | Let's talk about how to have money if you're brought back to life.

00:54:53.900 | In this scenario, you absolutely need to just simply establish a trust.

00:54:58.900 | And this is an interesting area of planning.

00:55:00.900 | I'll bet you it's somewhere and it may be simply that I looked at the boilerplate trust that this company is offering and it's certainly a good place to start.

00:55:10.900 | But I don't think this is – at least what I read there didn't look like it was specifically protecting your interests.

00:55:17.900 | So what you're going to do is establish a trust.

00:55:19.900 | And all a trust is is a document that lays out how certain – how money is going to be run essentially and for what purposes.

00:55:28.900 | And there's a high degree of flexibility in how this can be done.

00:55:31.900 | There's not an unlimited degree of flexibility.

00:55:33.900 | But if you find a qualified attorney, an attorney can sit and listen to you and write out some of the things that are going to need to be done.

00:55:41.900 | Now, this is very unique.

00:55:42.900 | So as an example, one of the things you want to be careful of is the company that is going to be handling the freezing of your body, are they financially solvent?

00:55:53.900 | And what happens if they're not?

00:55:55.900 | What happens if they go bankrupt?

00:55:57.900 | What happens if they're mismanaged?

00:55:58.900 | And so you would need – I would want to have something in my trust in which money was allowed to be dispersed by the trustee to protect my body in case this cryonics company were to be dissolved and they would have some leeway to select another one.

00:56:16.900 | That's an unusual term to put into a trust.

00:56:19.900 | So we need to set this up.

00:56:22.900 | Now, you're going to run into an interesting kind of wrinkle in the law depending on the company that you choose.

00:56:31.900 | There is a rule that's known as the rule against perpetuities.

00:56:34.900 | And so in traditional common law history, which is the type of law that exists in the United States, it's considered to be common law with the exception of Louisiana, which has a slightly different system.

00:56:45.900 | But in common law history, there's a rule against perpetuities.

00:56:50.900 | And the idea is we want to make it impossible for somebody 800 years ago to control wealth forever.

00:56:57.900 | And so the rule against perpetuities, I'll link to it, a Wikipedia article on it, which will be useful to you.

00:57:03.900 | But essentially it just simply says that you can't have control against – it prohibits – let's just read from the Wikipedia one.

00:57:12.900 | The New York Times' Tax Law Dictionary defines the rule against perpetuities as "the common law rule prohibiting a grant of an estate unless the interest must vest, if at all, no later than 21 years plus a period of gestation to cover a posthumous birth after the death of some person alive when the interest was created."

00:57:31.900 | So in essence, what this would mean is let's say that you live to the age of 100 and you die.

00:57:39.900 | This law would prohibit the money from being kept in trust for any longer than somebody who's alive at the date of your death plus 21 years.

00:57:50.900 | That's essentially what it's saying.

00:57:53.900 | Now, this is going to depend on what state you live in because this has been the rule traditionally, but there have been changes depending on the state that you live in.

00:58:05.900 | And so some states have other various legal doctrines.

00:58:09.900 | Some states have adopted a different variation of this rule called the Uniform Statutory Rule Against Perpetuities, which extends that waiting period from 21 years to 90 years.

00:58:21.900 | And then other states have repealed this rule.

00:58:24.900 | In fact, in Florida where I live, we have an approach that we can use called a dynasty trust.

00:58:31.900 | And in essence, the value of the dynasty trust is that we can create a trust in our state law that allows that trust to exist for the benefit of our children or grandchildren plus an additional 360 years after the benefited person has died.

00:58:51.900 | So if I – I mean, that's a tremendously long period of time.

00:58:55.900 | So in essence, it can be 360 years plus the lifetime of my grandchildren.

00:58:59.900 | So let's just assume that my grandchildren live for 80 years.

00:59:03.900 | That can bring me up to essentially 440 years in which I can control the money under the terms of the trust.

00:59:11.900 | These trusts can be incredibly useful.

00:59:13.900 | They can be written in a way that allows them to avoid intergenerational estate tax and generation-skipping transfer tax.

00:59:21.900 | They can be written in a way that protects my children and grandchildren's interests against the claims of creditors.

00:59:27.900 | They can be written in a way that protects my children and grandchildren against divorce agreements that would seek to take away their inherited assets.

00:59:37.900 | They can be incredibly flexible and useful.

00:59:42.900 | They can also have disadvantages and not be very useful.

00:59:47.900 | So you would want to think this through carefully and you would need to establish a trust that's going to serve you.

00:59:54.900 | Now, the challenge in this situation is going to be you're 23 years old.

00:59:57.900 | So unless you have substantial assets, paying the legal bills to have a well-written trust drawn up for you is going to be a challenge.

01:00:06.900 | How are you going to – how are you going to fund those bills and make sure also that what assets are you going to put into this?

01:00:13.900 | And also is your estate going to permit this to happen?

01:00:16.900 | Do you see it reliable that if you died this year that – in 20 or 90 years that this is going to happen?

01:00:23.900 | So you need to get some legal counsel in your specific state.

01:00:26.900 | Who knows? You're young enough maybe.

01:00:27.900 | If you need to take advantage of the Florida statutes, you need to move to Florida and take advantage of our life of descendants plus 360-year statutes.

01:00:37.900 | That might be useful for you.

01:00:39.900 | If you're wondering why states have different laws, it's because their goal is to attract to that state wealth.

01:00:45.900 | So there's a reason why in Florida we have Palm Beach Island and Jupiter Island and many other small enclaves throughout the state where wealthy people make sure to spend their retirement because we have advantageous laws protecting wealth.

01:01:01.900 | We have no state income tax.

01:01:03.900 | We have these laws such as this trust law.

01:01:05.900 | This brings wealth to the state of Florida, which enriches the local economy because when you need a trust, you need a trustee.

01:01:12.900 | So that brings all the local trust companies.

01:01:14.900 | And so this is intended as that proper functioning of competition among the states.

01:01:19.900 | So you want to just be careful that you understand the different state laws and you're choosing a state that's competing for your business.

01:01:25.900 | Now, you would want to make sure in establishing that trust that you have – I would definitely want to make sure I have a corporate trustee.

01:01:33.900 | Anytime you establish a trust, you need a trustee, and the trustee is the person who is in charge of administrating that trust and making sure that the assets of the trust are used in accordance with the trust document.

01:01:42.900 | And that trustee can be an individual.

01:01:44.900 | It could be your Uncle Joe.

01:01:46.900 | But in this situation, because you're looking for such a long-lived time period, most definitely you would want either a corporate co-trustee or simply a corporate trustee.

01:01:55.900 | And so this would be a trust company.

01:01:57.900 | These are traditionally run by banks.

01:01:59.900 | There are well-known national brands.

01:02:01.900 | There are well-known local brands, and you would want to have a trust company and they would need to understand the terms of the trust.

01:02:06.900 | And, yeah, so that would be – you would want to make sure you have a corporate trustee.

01:02:12.900 | Now, you also have to figure out how to fund it.

01:02:15.900 | So I'm going to make up a scenario.

01:02:17.900 | Let's say you have no money now and you're 100% focused on your wealth at the date of your death.

01:02:22.900 | Well, you could buy an additional life insurance policy.

01:02:25.900 | Let's say, for example, that you've established the fact that we're going to buy a $150,000 life insurance policy to cover the cost first up.

01:02:34.900 | And you've determined that you need a million dollars of money to grow at inflation – excuse me, to grow at a good investment return for you over the long term at your death.

01:02:44.900 | Well, you could just buy another million-dollar whole life insurance policy.

01:02:47.900 | Now, you're getting into the scenario, though, where you're going to be sacrificing some of the potential for you to maximize your enjoyment of your wealth now versus down the road.

01:02:56.900 | So I wouldn't – I wouldn't personally think that – I mean it's tough to do all of everything all at once.

01:03:02.900 | So what I would probably do is depending on your financial situation is I would look into establishing the trust and I would at least get something drawn up that was a simple – it was called a testamentary trust.

01:03:13.900 | And a testamentary trust is a trust that is established at the date of your death.

01:03:18.900 | And then as you are in this wealth-building stage of your life in your early, mid-20s and 30s, then I would title all of your assets so that the beneficiary of your assets at your death is that trust that's established in your will.

01:03:31.900 | So you would will your assets. You would make – if you have a 401(k) at your work, you would make that specific testamentary trust the beneficiary of your 401(k).

01:03:40.900 | This would be a good place for you to have that 20-year term policy.

01:03:44.900 | So this would be a good place for you to simply say, "OK, this level term policy is intended to – I mean at 23 years old, you can buy stuff for – it's not even a cost. It's less than a cell phone bill."

01:03:55.900 | So you could buy a million-dollar term policy and for the – again, probably the price of your cell phone bill or less and just make the beneficiary of that the testamentary trust.

01:04:07.900 | Then focus on building your assets, building your investment assets, and then over time, you'll get a sense of how much money am I going to live on while I'm alive versus how much money is going to be left when I die.

01:04:19.900 | So I would probably – if I woke up in your shoes with this set of constraints, I would go ahead – if I had the money, I would go – and assuming you're well-employed and you have a little bit of – I would go ahead and fund the $150,000 price tag with a permanent policy today.

01:04:36.900 | A permanent life insurance policy.

01:04:38.900 | And then I would set aside a million dollars of term insurance to fund the testamentary trust to have wealth at my death.

01:04:45.900 | Now, an additional wrinkle would be how – what kind of commands and instructions would you give for the management of the investment portfolio?

01:04:53.900 | That's kind of interesting because those commands and instructions would need to be flexible.

01:04:58.900 | I don't know what time period those of you who are interested in this field are anticipating that you would be able to successfully technologically bring life back.

01:05:09.900 | I don't know what the projections are, but it could be a very long period of time.

01:05:14.900 | And so if you think back, let's just say something like 300 years.

01:05:18.900 | Think of the changes in investment policy that have happened over the past 300 years.

01:05:25.900 | It's a very different investment horizon here.

01:05:29.900 | So this would need to be written in a very flexible manner.

01:05:32.900 | And yeah, what a challenge.

01:05:36.900 | What an interesting challenge of how on earth would you write that trust document in a way that's flexible enough but specific enough?

01:05:42.900 | And then how would you put that clause in there to incentivize the trustee to pay the money to bring you back?

01:05:51.900 | I think we're at the limit of my capacity to know.

01:05:55.900 | This would be – I would refer you to good legal counsel.

01:05:57.900 | I guess that's been kind of the answer for every scenario here.

01:06:00.900 | It's certainly an interesting discussion.

01:06:03.900 | The only other wrinkle that you're going to have to face throughout your life if this is a goal for you is what's the proper balance and allocation between you enjoying your money while you're alive and you funding your kids and your grandkids as traditional estate planning?

01:06:18.900 | And then you're funding this specific need.

01:06:21.900 | This is always a challenge that we face in financial planning.

01:06:23.900 | How much money do you want to spend?

01:06:25.900 | So most people never accumulate enough wealth to cover their own lifetime expenses.

01:06:33.900 | Then even fewer cover – accumulate enough wealth to cover their own lifetime expenses plus to leave an inheritance for close descendants.

01:06:41.900 | And fewer still leave enough wealth to enjoy their money, cover close descendants, and then fund their potential reanimation in the future from prionic freezing.

01:06:51.900 | So this is kind of an interesting challenge.

01:06:55.900 | But I would compare it in some ways to the challenge of planning for, say, a special needs beneficiary if you had a child who needed some sort of ongoing special needs care.

01:07:07.900 | What it simply is, it's a simple mathematical formula where we figure out what are the appropriate numbers and you can plug any cash flow need into a planning scenario.

01:07:17.900 | So if you can plug in the need of I need care for my child for this 70-year period of time and here's the level of care, the math is simple.

01:07:26.900 | The funding is not so simple.

01:07:28.900 | So you're going to have to do all the other stuff that we talk about in the show, increase your income, make sure that there's – you're saving lots of money, invest wisely because you're going to have a serious challenge to accumulate enough dollars to make this happen.

01:07:42.900 | And you're going to have to rank these things in order of importance.

01:07:45.900 | That would be one of the things I would do.

01:07:47.900 | I would caution you and just urge you to consider keeping flexibility.

01:07:52.900 | I am also young, so this is not a slight on your being 23 years old.

01:08:00.900 | This is an encouragement that take the ideas that are useful to you at 23 years old and assume they will change throughout your life.

01:08:09.900 | And again, even as simple as I have experienced, many of the octogenarians whom I've spoken to, they would say – you ask them, "Do you want to come back and live in this world?"

01:08:19.900 | They would say, "I don't really want to."

01:08:21.900 | So recognize that and keep flexibility for yourself.

01:08:25.900 | I would make sure that at every stage along the way, make sure you're getting good financial advice and keep the flexibility.

01:08:32.900 | So I wouldn't necessarily – I wouldn't transfer the ownership of life insurance policy to an irrevocable trust.

01:08:38.900 | I would make sure I kept it at least until my middle age and so I had an idea of what my needs were going to be.

01:08:44.900 | I would choose – the nice thing about a traditional whole life insurance policy is there are going to be cash values available to you.

01:08:50.900 | So if at 70 years old you decide that you don't want to pursue this course of action, you can terminate the insurance contract and you can spend the cash values on your retirement.

01:09:02.900 | You can enjoy the money while you're alive.

01:09:04.900 | I would be flexible and careful with regard to what companies I work for.

01:09:08.900 | So the specific cryonics company that you've mentioned, who knows if they'll even be around in 40 years.

01:09:13.900 | So I would be careful to make sure that I had full control and flexibility on my end so that as circumstances changed and developed over time, then I'm going to be well cared for.

01:09:25.900 | I'd want to make sure also that there were some flexibility, for example, for my – the executor of my estate.

01:09:31.900 | I don't know any of the details of cryonic freezing but what if you die in a fiery accident that is not the same as dying peacefully in your sleep?

01:09:39.900 | Well, make sure that the money that would otherwise be expended on your freezing is going to the people that you love, that you wanted to go to.

01:09:48.900 | So just plan for flexibility.

01:09:50.900 | It's a key aspect of good financial planning that we don't often consider enough is plan for flexibility, plan to change your mind, and account for that in advance.

01:10:01.900 | And I think you'll be in good shape there if you'll do that.

01:10:04.900 | So what an interesting question.

01:10:06.900 | I love thinking about interesting financial planning scenarios.

01:10:09.900 | I have never thought about that one.

01:10:11.900 | But hopefully this information can help you make some better decisions.

01:10:15.900 | That's it for our Friday show.

01:10:17.900 | This has been a fun week.

01:10:18.900 | I've enjoyed the shows this week.

01:10:20.900 | I am still deciding what I'm going to do next week.

01:10:23.900 | We've got a new website that's being designed.

01:10:25.900 | I need to do a lot of work on it this coming week.

01:10:27.900 | I may or may not do shows next week.

01:10:29.900 | Don't be surprised.

01:10:30.900 | I may not release any shows.

01:10:31.900 | I may release some interviews that other shows have done with me.

01:10:36.900 | So keep next week -- or I might do shows.

01:10:38.900 | I don't know.

01:10:39.900 | I'm still figuring it out.

01:10:40.900 | I haven't decided how I'm going to be able to prioritize the time available to me next week.

01:10:43.900 | So when I make that decision, you'll see it reflected here on the podcast feed and on the website.

01:10:48.900 | Brand new website coming.

01:10:50.900 | If you want to see it, make sure you go over and sign up to become a patron of the show, and you can see the website link there as far as just the sandbox that we're playing with.

01:10:59.900 | Hopefully the new site will be ready in a week or two.

01:11:01.900 | Working hard to get that done.

01:11:03.900 | So if you've got questions that you'd like me to answer on a Friday show like this, email them to me, Joshua@radicalpersonalfinance.com.

01:11:09.900 | I also prefer the verbal voicemail messages.

01:11:12.900 | So just go to radicalpersonalfinance.com and put those voicemail messages in there.

01:11:16.900 | And if you would like to make sure that your question gets answered --

01:11:19.900 | [coughing]

01:11:25.900 | Excuse me. I'm coughing.

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01:12:36.900 | So thank you all so much for being here.

01:12:38.900 | Talk to you tomorrow or Monday.

01:12:39.900 | Thank you for listening to today's show.

01:12:41.900 | If you'd like to contact me personally, my email address is joshua@radicalpersonalfinance.com.

01:12:48.900 | You can also connect with the show on Twitter @radicalpf and at facebook.com/radicalpersonalfinance.

01:12:55.900 | This show is intended to provide entertainment, education, and financial enlightenment.

01:13:02.900 | But your situation is unique and I cannot deliver any actionable advice without knowing anything about you.

01:13:10.900 | Please, develop a team of professional advisors who you find to be caring, competent, and trustworthy.

01:13:19.900 | And consult them because they are the ones who can understand your specific needs, your specific goals, and provide specific answers to your questions.

01:13:31.900 | I've done my absolute best to be clear and accurate in today's show, but I'm one person and I make mistakes.

01:13:38.900 | If you spot a mistake in something I've said, please help me by coming to the show page and commenting so we can all learn together.

01:13:46.900 | Until tomorrow, thanks for being here.

01:13:48.900 | Hey parents, join the LA Kings on Saturday, November 25th for an unforgettable kids day presented by Pear Deck.

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